When navigating the world of real estate, you'll encounter various terms and concepts that can sometimes be confusing, especially if you're new to the process. Two such terms are "real estate commission" and "concession." Although they sound somewhat similar, they refer to different aspects of a real estate transaction. Let's dive into what each term means and how they differ.
Real Estate Commission
A real estate commission is a fee paid to real estate professionals for their services in helping to buy or sell a property. This fee is usually a percentage of the property's final sale price and is typically shared between the buyer's broker and the seller's broker.
Key Points about Real Estate Commission:
Percentage-Based: The commission is generally a percentage of the home's sale price. The standard rate can vary by brokerage and is negotiable. This commission is then split between the buyer's and seller's brokers.
Payment Responsibility: In most cases, the seller is responsible for paying the commission. This amount is deducted from the proceeds of the sale at closing.
Services Provided: The commission covers various services provided by the real estate professional, including marketing the property, negotiating the sale, handling paperwork, and guiding clients through the buying or selling process.
Real Estate Concession
A real estate concession is a benefit, discount, or payment offered by the seller (or sometimes the buyer) that enable the buyer to complete the purchase. Concessions can take many forms and are typically used to sweeten the deal, making it more attractive to the buyer.
Key Points about Real Estate Concessions:
Types of Concessions: These can include covering closing costs, offering repair credits, providing home warranties, inspections, buyer broker fee, or even reducing the sale price.
Purpose: Concessions are often used to address buyer concerns, compensate for perceived deficiencies in the property, or simply a benefit that enables the buyer to complete the purchase. Sellers can market their willingness to consider concessions when listing a property.
Negotiation Tool: Concessions are commonly negotiated during the offer process. During the offer process buyers may request concessions and sellers can agree, counter, or decline these requests.
Key Differences
Nature of Payment:
Commission: A fee for services rendered by real estate professionals, typically calculated as a percentage of the sale price.
Concession: A discount, benefit, or payment offered to facilitate the sale, which can take various forms.
Purpose:
Commission: Compensates real estate professionals for their work in marketing, negotiating, and closing the deal.
Concession: Provides financial relief or added value that enables the buyer to complete the purchase.
Payment Source:
Commission: Usually paid by the seller from the proceeds of the sale.
Concession: Typically negotiated between buyer and seller, affecting the net amount the seller receives or the buyer pays.
Conclusion
Understanding the distinction between a real estate commission and a concession is crucial for anyone involved in buying or selling property. Commissions are the fees paid for the professional services of real estate brokers, while concessions are incentives provided to help close the deal. Both play significant roles in real estate transactions, but they serve different purposes and impact the financial aspects of the sale in distinct ways.
By being well-informed about these terms, you can better navigate the complexities of real estate transactions, ensuring a smoother and more successful experience whether you're buying or selling a property.
Contact a local REALTOR® today if you have any questions about real estate commissions or concessions, or if you're looking for expert guidance in your next real estate transaction.
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